Thoughts on economics and liberty

Sabhlokniti = Chanakyaniti + a little more liberty => FTI policy (?)

I find myself agreeing with many things Chanakya wrote (if these are taken broadly, not precisely: e.g. when he says that Ministers must be paid 800 times more than the lowest government functionary, I'm considering the broad recommendation to pay Ministers well, not the precise figure of 800).

Policies on which I agree with Chanakya

This is purely illustrative.

1. There must be a state.  [This rules out any form of anarchy.]

2. The king /ruler must be strong and powerful. [This is absolutely crucial, in order to provide stability, security, and peace.]

3. Maintaining law and order is a key function of the government. Chankya said, "Government by Rule of Law, which alone can guarantee security of life and welfare of the people, is, in turn, dependent on the self-discipline of the king".

4. The government must be minimal (taxes must not be too high or too little).

5. Taxes must include income tax (he opposed a lump sum poll tax. I agree).

When there was no order in society and only the law of the jungle prevailed, people [were unhappy and being desirous of order] made Manu, the son of Vivasvat, their king; and they assigned to the king one-sixth part of the grains grown by them, one-tenth of other com-modities and money. The king then used these to safeguard the welfare of his subjects. Those who do not pay fines and taxes take on them¬selves the sins of kings, while kings who do not look after the wel¬fare of the people take on themselves the sins of their subjects

6. Income tax should have some level of proportionality built into it:

Kautilya suggested a graduated tax (although only during an emergency but on top of the existing income tax, which was one-sixteenth of the produce) on land holdings according to the yield from them. He suggested that the king “should demand a third or a fourth part of the grains from a region, whether big or small in size, that is not dependent on rains and yields abundant crops; from a middling or inferior one, according to yield.

7. The government must remove obstacles to economic growth ("remove all obstructions to economic activity"). This will result in wealth. ("In the absence of fruitful economic activity, both current prosperity and future growth are in danger of destruction. A king can achieve the desired objectives and abundance of riches by undertaking productive economic activity").

8. To ensure high quality advice from men of integrity, Ministers must be paid very well, but then held to account. Punishment for corruption must be sharp and swift. Those who bribed under duress – and complain to an investigating offer – should be reimbursed their costs.

9. The treasury must not just be balanced, it must be in significant surplus.

10. There should be detailed accounts of all government expenditure (accountability).

11. The government must invest significantly in infrastructure [e.g. state should have good roads and waterways; roads are essential for national security as well as for promoting commercial activities; and ports, etc.]. Not more than 25 per cent of all government expenditure must go on salaries.

12. People must work hard and strive to become rich ["Wealth will slip away from that childish man who constantly consults the stars"].

13. Trade must be promoted, and foreign traders given shelter.

14. Prohibition doesn't solve problems. Regulation does (e.g. alcohol, prostitution, gambling).

15. There shall be a social minimum (in my view, as part of social insurance). Chanakya said: "King shall maintain, at state expense, children, the old, the destitute, those suffering from adversity, childless women and the children of the destitute women".

Policies on which I differ with Chanakya

1. Chankya allowed for some government production (e.g. monopoly over alcohol). I disagree with ANY state production. Anyway, even where a government does decide to produce something, it must ensure profitability. That would have definitely been Chanakya's approach – thus being totally inimical to Nehru's loss making public enterprises. Chankya would have OPPOSED SOCIALISM TOOTH AND NAIL.

2. Chankya does get involved in setting wages and some prices. This is unnecessary and should be left free to markets.

3. Chanakya believes that happiness of citizens should be a goal for the king. In my view, liberty of citizens should be the goal. Free people can work out their own happiness.

That's it for now. More later. I'll keep adding to this blog post.

Much of this material will find its way into the Hindu Capitalism book project.

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Sanjeev Sabhlok

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